Auditors: North Hampton making progress but more work needs to be done

NORTH HAMPTON — While commending the town's financial officials for implementing many prior year recommendations, the audit firm of Melanson, Heath and Co. continues to point out areas where internal controls are less than what they could be and operating efficiencies in record keeping can be made.

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By Shir Haberman

seacoastonline.com

By Shir Haberman

Posted May. 6, 2014 at 2:00 AM

By Shir Haberman
Posted May. 6, 2014 at 2:00 AM

» Social News

NORTH HAMPTON — While commending the town's financial officials for implementing many prior year recommendations, the audit firm of Melanson, Heath and Co. continues to point out areas where internal controls are less than what they could be and operating efficiencies in record keeping can be made.

In fact, three of the recommendations made by the auditors following a review of the town's finances for the 2012-13 fiscal year, refer back to problems noted as far back as 2010. While the audit done for the 2010-11 fiscal year listed these items as "material deficiencies," a classification that reflects the auditors' feelings that the situation does not allow management to detect and correct accounting or reporting issues, the issues reported in the current audit letter did not rise to that standard, the auditors wrote.

"Our consideration of internal control was for (a) limited purpose ...; and was not designed to identify all deficiencies in internal control that might be material weaknesses," the audit management letter dated Jan. 14, but released recently stated. "Given these limitations, during our audit we did not identify any deficiencies in internal controls that we consider to be material weaknesses."

In the 2010-11 audit letter reference was made to a material weakness that involved the need to improve overall financial reporting. The auditors found that balance sheet accounts, revenue and expenditure accounts, deferred revenue accounts and prior year audit adjustments were not adequately updated, and that, as a result, the auditors had to analyze every account in each of these categories, and generate new entries to record and reconcile them.

"Instead of relying on the year-end audit to adjust balance sheet, and revenue and expenditure accounts, we recommend that the town analyze its general ledger and financial reports on a monthly basis, and develop procedures in order to improve financial reporting," the auditors wrote in that report released in March of 2012.

In the report released this year that issue again surfaced.

"During fiscal year 2013, the town made significant improvements recording activity in the due to/from accounts within the (town's) accounting software," the auditors wrote in this year's management letter. "However, these balances did not fully offset and the town has not yet transferred the actual cash between the related bank accounts."

Town officials promised to make the necessary adjustments this year.

The second material weakness found by the auditors in 2010-11, involved the failure of the town to account for special revenue and trust funds in its general ledger. Fixing this problem would help resolve some of the issues cited in the first weakness, the auditors noted.

"We recommend the town record all activity in the general ledger," the auditors wrote at that time. "This will improve oversight and controls over all town activities, and will minimize the risk of error and irregularities occurring and going undetected."

This year, the auditors commended the town's financial staff for making strides in this area, but noted that the full process has not yet been completed.

"The town made significant progress in transitioning special revenue and trust funds to the general ledger," the 2014 report read. "However, we noted that the library and cemetery funds have not yet been transitioned."

In response to this statement the town's financial staff indicated that it agreed that the library funds have not yet made it into the general ledger. They noted, however, that "the town accountant assumed primary responsibility for the library's bookkeeping functions during the fiscal year and we believe this will facilitate the incorporation of the library accounts into the town's general ledger in fiscal year 2014."

They also noted that all but one account associated with the cemetery had been added to the general ledger in 2013 and that the outstanding account was added in 2014.

The third material weakness noted in the 2010-11 report had to do with the fact that currently the town "only informally performs its own risk assessment for possible fraud or material misstatement." The auditors urged the town's financial staff to identify areas where the town may be vulnerable to errors and/or irregularities.

"Particular attention should be given to potential related-party transactions and conflicts of interest," the auditors wrote at that time. "Specific monitoring activities to address these risks should be implemented."

This year, the auditors again urged town financial officials to make the current risk assessment process more formal.

"The town informally performs risk assessment for possible fraud or material misstatement through various policies and procedures, and regular reviews of trends in the financial statement," the 2014 management letter states. "(However,) a complete risk assessment process involves a written description of risk areas identified by those charged with governance and a description of how the organization intends on responding to the risks."

Town financial officials responded that regular department head meetings are held at least every two weeks to address spending, areas of concern, project updates, and potential risks, but agreed more could be done in this area.

"The meetings are also a forum for giving attention to potential conflicts of interest and related-party transactions," they wrote in their response to the auditors' comments. "We agree that written documentation of the assessment process can be improved."

While it did not rise to the level of a material weakness, auditors last year pointed to the need to establish an assessor's log of abatements. They indicated that this issue has yet to be addressed.

"This log would facilitate and improve reconciliation procedures with the town accountant, as well as to provide the (Select Board) with a periodic update of this critical information," the auditors wrote. "This issue remains unresolved."

Town officials countered that an abatement log, maintained jointly by the town's contracted assessors and the Finance Department, was created during the current fiscal year. The log was used to assist the town accountant in reconciling approved abatement requests with adjustments applied or refunds requested by the tax collector's office, they indicated.

"However, the assembled information has not been utlized to provide the (Select Board) with periodic updates as has been suggested by the auditors," the town officials conceded.